Journal of Financial and Strategic Decisions Volume 8, Number 1   Spring 1995 ESOPS IN PUBLICLY HELD COMPANIES: EVIDENCE ON PRODUCTIVITY AND FIRM PERFORMANCE Lisa F. Borstadt Northern Arizona University Thomas J. Zwirlein University of Colorado Abstract Eighty-five publicly traded firms that establish an employee stock ownership plan between 1973 and 1986 are examined to determine the effect of ESOP adoption on their productivity and performance. We analyze several measures of productivity and performance and compare the sample firms with a control group matched by industry and size. The results provide no evidence of any productivity gains or performance improvements following ESOP adoption. The proposition that employees with an equity stake will be more productive and improve firm performance is not supported.

Journal of Financial and Strategic Decisions Volume 8, Number 1   Spring 1995 THE MONTHLY EFFECT IN INTERNATIONAL STOCK MARKETS: EVIDENCE AND IMPLICATIONS Denis O. Boudreaux University of Southwestern Louisiana Abstract A monthly effect has been reported in several international stock markets. This study investigated seven countries' stock markets that have not been studied thoroughly. Three of the seven countries' markets had a monthly effect. An inverted monthly effect was found in a Pacific basin market. It was also determined that the January effect, although significant, was not capable of explaining the presence of monthly effect where they exist.

Journal of Financial and Strategic Decisions Volume 8, Number 1   Spring 1995 PRICE EFFECTS OF RELATIVE REPORTING DELAY OF SAME-DAY EARNINGS AND DIVIDEND ANNOUNCEMENTS Joseph K. Cheung George Mason University Jot Yau George Mason University Abstract This study focuses on the intraday relative timing of same day announcements of earnings and dividends. The price effects of three timing patterns are examined: (a) both earnings and dividends announced after the close of trading, (b) dividends announced before and earnings announced after the close of trading, and (c) earnings announced before and dividends announced after the close of trading. Based on both univariate tests of abnormal returns and on comparing portfolio abnormal returns, the evidence weakly supports the overall hypothesis that investors pay attention to the relative timing of the same day announcements.

Journal of Financial and Strategic Decisions Volume 8, Number 1   Spring 1995 THE DETERMINANTS OF ACTUARIAL ASSUMPTIONS UNDER PENSION ACCOUNTING DISCLOSURES V.Gopalakrishnan George Mason University Timothy F. Sugrue George Mason University We appreciate the helpful comments of our colleagues with the departments of accounting and finance at George Mason University. Abstract Corporate managers make several assumptions such as the discount rate and the rate of salary progression in calculating the periodic pension expense and pension liabilities. The choice of these assumptions can pose significant problems for financial reporting. This paper examines the following two questions concerning the choice of these assumptions. First, what factors drive these assumptions? and second, are these assumptions dependent on each other? Based on a sample of 300 observations, we find that leverage and pension plan funding play important roles in the choice of these assumptions. More importantly, it appears that these choices are related. The results of our study have important implications for analysts and accounting standard setters.

Journal of Financial and Strategic Decisions Volume 8, Number 1   Spring 1995 CONSTRUCTING INSIDER HOLDINGS FROM COMPUTERIZED SEC TRANSACTIONS DATA Kenneth H. Johnson Georgia Southern University Abstract Studies of ownership structure generally extract the insider holdings for officers and directors from proxy statements, which has three disadvantages: (1) the data must be manually extracted, assembled, and entered into the experimental dataset; (2) dates for the insider holdings are limited to the dates given in the proxy statements; and (3) the insider holdings include only officers and directors. This paper describes a way to construct the holdings for all insiders, not just officers and directors, at any arbitrary time, for any firm reporting to the Securities Exchange Commision (SEC), by using the data files from the SEC's computerized Ownership Reporting System (ORS). A test of this ORS-based measure against a sample of proxy statements found that, for 90 percent of the 77 useable proxy statements, the ORS-based measure was within 5 percent of the proxy data. The ORS data are noisy, though, and the resulting values for insider holdings could contain both noise and some degree of bias. Although the ORS-based measure almost certainly is not as reliable as proxy data, it is suitable, and sometimes the only feasible alternative, for some research designs. A great deal of time was spent in ferreting out certain important information about the documentation and the data. This paper furnishes that information in sufficient technical detail to substantially flatten the learning curve for other researchers who want to use the ORS data, whether to derive insider holdings or to study other aspects of the data.

Journal of Financial and Strategic Decisions Volume 8, Number 1   Spring 1995 THE PERFORMANCE OF STOCKS: PROFESSIONAL VERSUS DARTBOARD PICKS Youguo Liang Cleveland State University Sanjay Ramchander Cleveland State University Jandhyala L. Sharma Cleveland State University Abstract This paper evaluates the performance of a portfolio formed on professional advice (also called pros picks) with another portfolio picked at random (also called random or dart picks). We study public announcements of professionals' recommendations and random picks from the "Investment Dartboard" column in the Wall Street Journal. Our findings indicate that significant abnormal returns accrue to the investors' of pros picks, on the day of publication and on one day after the publication. The results also indicate that there is no significant stock price behavior pattern prior to the pros recommendation. The holding period is arranged on a continuum ranging from roughly one week to six months and a comparison of the mean excess returns of the two portfolios is made over this range. Results suggest that the pros selection statistically outperforms the random selection only in the one-week period. Over a six-month holding period, the random stocks perform better than the pros recommendations. A publicity effect is discerned from the pros recommendation, which gives support to a moral hazard problem encountered by investment professionals. The results are also consistent with the literature on noise and overreaction.

Journal of Financial and Strategic Decisions Volume 8, Number 1   Spring 1995 INDIVIDUAL ASSET ALLOCATION AND INDICATORS OF PERCEIVED CLIENT RISK TOLERANCE Neil F. Riley Francis Marion University Manuel G. Russon St. John's University INTRODUCTION Proper asset allocation is dependent upon two inputs: (1) expected capital market returns and (2) the individual client's desire and ability to tolerate risk. Though much has been done to explain capital market returns, little has been added to our understanding of the factors which influence client risk tolerance. As money managers begin the task of allocating a client's money into various investment vehicles they face two potential problems. First, the money manager may poorly allocate the funds. This can lead to the client either not having the required funds at a desired point in the future or perhaps lead to a loss of client wealth. The second problem stems from the first; the money manager may be held liable for poor performance. This study provides insight into individual client risk tolerance in a manner which addresses both problems mentioned. As will be detailed later in the article, the methodology of the study is designed to provide a quantitative, rather than qualitative, model for measuring client risk tolerance. Thus, the study contributes a methodology which allows clients to achieve their objectives, as well as one which provides the money manager with a technique to determine client risk tolerance in a manner which is prudent and defendable. Individual asset allocation is a twofold process. First, the expected capital market returns must be estimated and second, the risk tolerance of the client must be determined.

Journal of Financial and Strategic Decisions Volume 8, Number 1   Spring 1995 INTEREST RATE SWAPS: A MANAGERIAL COMPENSATION APPROACH John L. Scott Northeast Louisiana University Maneesh Sharma Northeast Louisiana University Abstract The market for interest rate swaps has grown consistently since its inception. Swaps involve "swapping" fixed interest rate debt for variable rate debt. We explain this growth using a game theoretic model. We focus on managerial and owner compensation differences under swaps and open market restructuring. We conclude that swaps occur because the swap market incorporates information about the firm more quickly than the open debt market. Hence, managers of firms whose credit risk has improved may capture the lower default risk premium more quickly in the swap market than they can in the open market. The lower default risk premium benefits owners and managers of firms whose compensation depends on the value of the firm.

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